9.8 - Reorganizations

Question 1

Overview

How are reorganizations considered for tax purposes?

Answer 1

As a change in form of investment rather than than a disposition of assets

Question 2

Overview

How is gain recognized for reorganizations?

Answer 2

Gain recognized to the extent of boot

Question 3

Shareholder

How do shareholders recognize gain or loss in reorganizations?

Answer 3

Shareholder recognizes no gain or loss on an exchange of stock or securities solely for stock or securities in the same or another corporation that is party to the reorganization

Question 4

How do shareholders recognize boot in a reorganization?

Answer 4

Gain on non-qualifying property is recognized

Question 5

Define non-qualifying property that shareholders would recognize boot on

Answer 5

* Property other than stock or securities in a corporation that is party to the reorganization

* Securities received when non are surrendered

Question 6

Describe the treatment of excess FMV over face value of securities received when non are surrendered

Answer 6

The excess FMV is considered boot

Question 7

How is the amount of boot recognized for shareholders in a reorganization?

Answer 7

Recognized at the < gain realized or FMV of non-qualifying property

Question 8

Identify the character of shareholder boot in a reorganization

Answer 8

* Shareholder deemed to have received only stock & then to have redeemed the stock for cash

* Gain treated as dividend (OI) to extent of E&P if exchange has effect of a dividend distribution

Question 9

How is loss recognized for shareholders on a reorganization?

Answer 9

Loss is not recognized

Question 10

Describe the treatment of shareholder basis in stock or qualified securities during a reorganization

Answer 10

Basis in stock or qualified securities received is exchanged

Question 11

Describe the treatment of shareholder basis in boot during a reorganization

Answer 11

Basis in boot is tax cost

Question 12

How does the transferor corporation (acquired or purchased) recognize gains or losses in a reorganization?

Answer 12

• Recognizes no gain or loss on exchange of property solely for stock of another corporate party
• Gain only recognized on boot not distributed (by the transferee)

Question 13

Is liability relief considered boot for the transferor (acquired) corporation?

Answer 13

* Liability relief is not boot unless it was for a nonbusiness or tax-avoidance purpose

Question 14

When does the transferor (acquired) corporation recognize gain?

Answer 14

If it distributes property other than stock or securities of another corporate party

Question 15

Describe the treatment of the liability amount if the transferor (acquired) corporation recognizes gain due to it distributing property other than stock or securities of another corporate party

Answer 15

* Liability amount > basis is treated as FMV of property

Question 16

How are losses treated if the transferor (acquired) corporation recognizes gain due to it distributing property other than stock or securities of another corporate party?

Answer 16

* No loss is recognized unless distribution is to a creditor

Question 17

Identify the 2 situations when the transferor (acquired) corporation recognizes no gain or loss on distribution (even if to a creditor)

Answer 17

* stock or securities it received from a party to the reorganization

* boot received, except for post-acquisition gain realized

Question 18

When does the transferee (acquiring or purchasing) corporation recognize gain on a reorganization?

Answer 18

Recognizes gain only on appreciated property exchanged but not its own stock or securities

Question 19

How does the transferee (acquiring or purchasing) corporation account for basis in property acquired from the transferor (acquired or purchased) corporation?

Answer 19

Basis is transferred + gain recognized by the transferor corporation

Question 20

Identify the 7 types of reorganizations that would qualify for nonrecognition treatment

Answer 20

1 - Type A - statutory merger or consolidation
2 - Type B - stock for stock
3 - Type C - stock for assets
4 - Type D - division
5 - Type E - recapitalization
6 - Type F - reincorporation
7 - Type G - bankruptcy reorganization

Question 21

What is a merger?

Answer 21

Two corporations merge into one and the other no longer exists

Question 22

Define the stock treatment of the non-surviving corporation in a statutory merger

Answer 22

Stock is cancelled and shareholders receive stock in surviving corporation

Question 23

What is a consolidation?

Answer 23

existing corporations are combined into a newly formed corporation

Question 24

Identify the type of reorganization that would possess the following attributes:
* Shareholders acquire stock of a corporation solely for part or all the voting stock of the acquiring corporation or its parent
* No boot allowed
* Acquire corporation must control acquired corporation
• 80% voting and all other

Answer 24

Type B - stock for stock reorganization

Question 25

Define a Type C - stock for assets reorganization

Answer 25

One corporation acquires substantially all the assets of another in exchange for its voting stock (or its parents)

Question 26

True or False \>\>\>
The transferor (sale of assets) corporation must liquidate in a stock for assets reorganization

Answer 26

TRUE

Question 27

What % of assets acquired may be exchanged for “other than voting” stock of the acquiring corporation ina stock for assets reorganization?

Answer 27

20%

Question 28

What does “substantially all assets” mean in a stock for assets reorganization?

Answer 28

“substantially all assets” means >= 90% of the FMV of net assets and >= 70% of gross assets

Question 29

Identify the type of reorganization that would possess the following attributes:
* Corporation transfers all or a part of its assets to another in exchange for the other’s stock
* Transferor or its shareholders must control the transferee after exchange
* Stock or securities of controlled corporation must be distributed to shareholders of the corporation that transferred assets to the controlled corporation
* Distribution of the stock need not be pro rata among the shareholders of the corporation that transferred assets to the controlled corporation

Answer 29

Type D - division reorganization

Question 30

Define a Type E - recapitalization reorganization

Answer 30

Capital structure of organization is modified by exchange of stock & securities between corporation and its shareholders

Question 31

Stock and securities exchanged upon a change in name, form or place of incorporation would be considered what type of reorganization?

Answer 31

Type F - reincorporation

Question 32

Define a Type G - bankruptcy reorganization

Answer 32

Stock, securities & property exchanged pursuant to a court-supervised bankruptcy proceeding

Question 33

Identify the 5 nonrecognition requirements that must be met to gain nonrecognition treatment

Answer 33

1 - plan must be filed with return of participating corporation
2 - distributions must be in exchange of stock or securities of corporation party to reorganization
3 - business purpose other than tax avoidance
4 - 40% continuity of equity interest by value retained by owners
5 - continuity of business enterprise